Outlook for Foreign Direct Investment in China
The dilemma of the 1990s will be how quickly Chinese leaders can convince foreign investors that business conditions have stabilized and improved within the People's Republic. The challenge for the Chinese leadership is to develop long-term strategies designed to move ahead with economic reform while at the same time preventing social unrest and inflation from bringing chaos. The question remains, will China's leaders be able to bring back the momentum of 1987 through June 1989, whereby investment and trade boomed, without making radical changes in the political environment. Sustained growth in foreign investment during the 1990s will not move forward without returning to the reforms, which were abandoned in mid-1989, and correcting internal business practices and further enhancing the investment climate.
It is important to note that the austerity program, which limited loans and credits, slowed but did not fully destroy the foreign investment momentum. In so doing, China reversed the decentralization of decision- making authority at the provincial and local levels, centralizing more authority in Beijing. While a degree of recentralization was deemed necessary to curb inflation and to channel financial resources (loans and bank guarantees) and scarce materials into projects that were fulfilling national needs, as well as to stop unnecessary, luxury imports from entering the Chinese marketplace, the leadership apparently overreacted.
Even with the negative impact resulting from the events of June 1989, China has been successful in attracting foreign investment during the